November FCC Meeting – Cable Agenda Update

By Steven J. Horvitz
[November 2007]

The FCC’s November 27 meeting was an unusual one, from the issuance of the agenda last week to the 12-hour delay in its start last night. Chairman Kevin Martin had designated a surprisingly large number of cable-related matters for adoption, including several potentially new regulatory regimes (such as minority-affiliated multicast carriage requirements and network carriage arbitration procedures) that were pulled from the final agenda.

Perhaps the most controversial item on the agenda was the Commission’s annual report to Congress on the state of video competition. Although the report is ordinarily non-controversial, the Chairman this year contended that the cable industry had now passed the “70/70” statutory threshold (i.e., cable passes 70 percent of all U.S. television households and 70 percent of those households subscribe to cable) justifying adoption of more intrusive cable regulations. The agenda also included another look at the FCC’s existing “commercial leased access” (CLA) rules, with the threat of a substantial reduction in the rates cable operators can charge CLA programmers.

70/70 determination

Chairman Martin’s attempt to secure an affirmative ruling on the 70/70 threshold was soundly rejected. The real debate focused on the second prong of that statutory test, which asks whether 70 percent of all television households subscribe to cable. Chairman Martin relied on an analysis by Warren Communications and disregarded contrary evidence from multiple sources that the Commission had considered in prior reviews. Commissioners Jonathan Adelstein and Robert McDowell were particularly critical of Chairman Martin for trying to “cook the books” and “suppress” contrary evidence from the public and other Commissioners. In Commissioner McDowell’s words:

[I]t appeared that the Commission was going to ignore a mountain of evidence from independent analysts and prior Commission findings to favor a solitary study…. [T]he Commission was prepared to do so…because this flawed anomaly was the only fig leaf that could be found in an attempt to trigger an avalanche of unnecessary regulation to cascade down upon an otherwise competitive industry.

Because of concerns over the sufficiency of the data in the draft report, the Commission adopted the annual competition report without reaching a definitive conclusion on the 70/70 question. In an effort to secure a better record, the Commission will now require each cable operator to submit information within 60 days regarding the number of homes the operator passes and the number of subscribers the operator serves. Armed with this new information, the Commission presumably will revisit the 70/70 question next year.

Commercial leased access

Last night’s commercial leased access deliberations were almost as heated as the 70/70 debate. In this case, however, the Chairman succeeded in adopting new rules by a 3-2 vote. Martin’s two fellow Republicans (McDowell and Deborah Taylor Tate) voted against the new rules. Although Commissioner Adelstein voted for adoption, he simultaneously expressed grave concerns about flaws in the Commission’s administrative process, including the failure to put the new CLA rate formula out for public comment. He volunteered, “To be frank, the methodology was invented by staff out of whole cloth without sufficient public input, independent review or any transparency.”

Under the Communications Act, cable operators are required to set aside a portion of their channel capacity for lease by unaffiliated programmers. The new CLA rules will replace the existing rate formula (which values each CLA channel according to the operator’s “average profitability”) with a new reduced monthly figure equal to just 10 cents per subscriber. The new rate is purportedly based on the operator’s “least profitable” channel and represents a dramatic reduction from the current formula. Operators will be allowed to petition for a higher rate on a case-by-case basis, but the associated legal and operational burden is likely to be high.

Recognizing that this dramatically reduced rate might attract a large number of home-shopping and infomercial programmers, the Commission did expressly exclude these commercial programmers from the reduced CLA rates, pending a further inquiry. This eligibility restriction may reduce the likelihood of a deluge of CLA applicants, but it could subject the entire leased access scheme to a judicial challenge on constitutional grounds for being content-based.

In addition to the mandated rate reduction, the Commission adopted several regulatory changes intended to facilitate CLA usage. For example, the Commission reduced the response time for operators to provide information to CLA applicants from 15 to three days, provided new, expanded discovery rights, and required the FCC to resolve any future CLA complaints within 90 days.

Significantly, the effective date of the new CLA rate is deferred for 90 days. The delay was evidently adopted to address Commissioner Adelstein’s concerns about the FCC’s procedural lapses. Commissioner Adelstein explained, “It is …appropriate that we provide a 90-day delay in the effective date of the new formula so that all parties can have opportunity to inform us of any concerns or file petitions for reconsideration.” It is unclear how this post facto comment opportunity can cure earlier procedural lapses or whether the Commission will further delay the implementation date or voluntarily consider substantive changes in response to any articulated concerns.

The text of these two rulings is not yet available. We will provide additional updates when the text is released.

For more information, please contact:

Author: Steven J. Horvitz Washington, D.C. (202) 973-4200 stevehorvitz@hotmail.com

Other DWT contacts:
John D. Seiver, Washington, D.C., (202) 973-4200, johnseiver@dwt.com
Robert Corn-Revere, Washington, D.C., (202) 973-4200, bobcornrevere@dwt.com
Maria T. Browne, Washington, D.C., (202) 973-4200, mariabrowne@dwt.com
Burt Braverman, Washington, D.C., (202) 973-4200, burtbraverman@dwt.com

This advisory is a publication of the Communications Group of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent developments in the communications industry. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may be given only in response to inquiries regarding particular situations. Attorney advertising. Prior results do not guarantee a similar outcome.

Copyright © 2007, Davis Wright Tremaine LLP.

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